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Industry working with EDC on finding a bonding solution

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by Vince Versace last update:Oct 9, 2014

Export Development Canada (EDC) made its case to Canada's construction industry recently that a permanent industry-based solution is needed for bonding public-private partnership (P3) projects domestically.
Industry working with EDC on finding a bonding solution

“This is not a space we want to be in for the long haul — we are trying to be an active participant in an industry solution,” explained EDC’s Kirk Anderson to Canadian Construction Association delegates at their recent annual conference in Panama.

“We are concerned about our ability to transition out of this. But, we certainly believe that a surety product is a longer term solution and believe that as an industry there are things we can do together to get to that point.”

Anderson was joined by Derek Austin of the EDC in a presentation describing current performance guarantees (bonding) for P3s in Canada.

In the 2009 federal budget, the government gave EDC temporary domestic powers and suspended provisions of the Export Development Canada Exercise of Certain Powers Regulations governing its domestic activities in order to add capacity to domestic credit and insurance markets, specifically through letters of credit.

These temporary measures expired in 2013 and were renewed again, only to expire in mid-March of this year.

Anderson said the government’s position is that the “economy has recovered enough and EDC did not have to be in that space.”

The federal government sought public consultation on the termination of these EDC extended powers and received a wave of feedback, noted Anderson.

“What happened was rather unexpected for the government,” he said

“They received a ton of submissions from various players in the construction industry, from banks to contractors to brokers, all making the point that a market gap would exist— putting Canadian contractors at a disadvantage to their international competition.”

Specifically, when it came to P3 projects, Canadian contractors stated they would not be able to post letters of credit in the amounts needed “to remain competitive, particularly against European contractors who can come to Canada with unlimited letter of credit capacity,” said Anderson.

Based on the feedback it received, the federal government instructed EDC that, because a domestic gap does exist, they are to remain in the P3 bonding space for the next while and to help find a new bonding solution.

The EDC now has amended regulations governing its operation, but its core mandate remains to provide support to any project a Canadian company must meet exporter criteria, explained Anderson.

A domestic project must meet one of two tests: 1) the transaction/subject of the bond has an international connection, or 2) 50 per cent of the company’s revenues come from international projects.

If neither of the above requirements are met, the EDC can approach a minister for ministerial authorization to issue the support.

The issues the EDC would like to address in its next round of consultation with industry would cover the following issues:

What role would industry like EDC to play in building a longer term solution?

What role do associations play?

P3 Canada should be consulted on what can be done.

What role do sureties play?

Michael Atkinson, CCA president, stressed that Canadian construction will not be satisfied if there is not an equivalent product in the marketplace to replace EDC’s domestic letter of credit/bonding powers.

He noted that the definition of an “equivalent product” still requires work.

“We have been very clear with this government that, it is 48 months you have given so far, even if it takes 96 months to get the right product in place, that’s what we want to see happen,” he said.

The CCA has stated before it is seeking an ongoing unfettered ability for Canadian firms to access EDC’s domestic performance security guarantee program.

last update:Oct 9, 2014

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